Perhaps the fiscal cliff episode kept you on the edge of your seat for a bit. Whether it did or not, you had better fasten your seat belts now. There is another financial concept that may be less immediate than the fiscal cliff, but dwarfs it in both size and importance. That concept is called the fiscal gap. It is described in a provocative, fact-based volume by Laurence Kotlikoff and Scott Burns titled The Clash Of Generations.

The fiscal gap is derived by adding up all of this country's future bills (debts, guarantees, obligations) less expected tax revenues (at current rates). The result is converted into a present value by using a discount rate of 3 percent (a proxy for inflation). The number produced by Kotlikoff and Burns is a staggering $217 trillion for the federal government, which is 13 times one year's economic (GDP). There is an additional fiscal gap of $38 trillion for state and local governments. These figures indicate that a combination of large spending cuts (particularly for entitlements and the military) and tax increases will become necessary over the long term.

The majority of our fiscal gap is the projected obligations we have already incurred for entitlements (Social Security, Medicare, and Medicaid) that now cost over $1.5 trillion every year. (It doesn't help that federal taxes as a percentage of GDP have dropped from 22 percent to 15 percent over the last decade.) Most of us are aware that Medicare and Medicaid are hemorrhaging red ink at an alarming rate. However there is a sense of short-term complacency about Social Security. Even though 2012 was the first year that its operations dipped into the red, many economists predict that it won't start to run into real trouble until around 2030.

Those predictions severely understate the status of the so-called reserve fund which hold the surpluses generated in previous years. The fund theoretically contains sums in excess of $3 trillion. That is an illusion. Since the federal government made a practice of borrowing these monies as soon as they arrived, the fund now consists almost entirely of IOUs. The only way Social Security can get its hands on this money is if the government borrows or prints it.

It is also critical to recognize that our entitlement programs represent a massive redistribution of wealth from the younger generations to the older ones. As a result this country spends more than $4 annually on each person over 65 than it spends on each person under 18. This disparity is emphatically true for Social Security where everyone now retired (like me) or about to retire will take out far more from the system than they contributed via taxes. Even in the case of Medicare, the Urban Institute estimates that an average American couple will pay $100,000 in taxes over their working lives and receive $343,000 over their entire lives in benefits. This is a recipe for financial disaster and social instability.

Should Kotlikoff and Burns turn out to be 75 percent too high in their fiscal gap estimate, the remaining number of $54 trillion is still much larger than our policy makers are employing in their calculations. Looking at these numbers has made me aware that we will have to make major adjustments in the way we tax and dispense benefits. The fiscal gap may loom in the distance, but each year that we ignore its existence or fail to summon forth political will just makes the inevitable reckoning more expensive.